Low yields in parts of central London suggest looming price crash
Runaway price increases could top out within 18 months in central areas such as Bond St, leaving only one way for them to go, some say
Voracious investor demand for the best London real estate is approaching record levels that could trigger a price crash in popular areas such as upmarket Bond Street, property experts say.
The luxury shopping strip that is home to Prada, Louis Vuitton and Cartier has ultra-low yields that mark it out as the most in-demand stretch of real estate in Europe.
The price of commercial property is dictated by the yield, which is the annual rent expressed as a percentage of a property's value. Yields fall as investor demand increases and push up real estate prices.
The 2.75 per cent yield on Bond Street properties should fall to 2.25 per cent by the end of the year and could hit a world-record low of 1.75 per cent in 18 months, says David Hutchings, of property consultant Cushman & Wakefield. The record was set by Taipei in 2011.
Such low yields could signal the top of the property market in central London, says Michael Marx, chief executive of British developer Development Securities.
"Those sorts of yields are breathtaking," Marx said. "The problem is that when you get to the top of Mount Everest there is only one way to go."
Rising rents would act as a brake on price falls, but they are unlikely to prevent a drop of a third or more, with the effect in London rippling out from the epicentre of Bond Street, he added.